Johnnic will need some magic to escape HCIs hostile spell - Tuesday 12th of July 2005

Today Harry Potter fans, myself included, will devour the latest book. And today, akin to the retiring Sibyll Trelawney, Id like to haul out the crystal ball and try to gaze into the future to figure out what may happen in the saga of Johnnic Holdings and Hosken Consolidated Investments (HCI).

Like some fantastical tale, the possible outcome keeps shifting. One minute HCI says boldly it wont pay 1c more than R9.75 a share for Johnnic, the next it says it would consider upping the bid.

But lets look at the likelihood that HCI will gain control of Tsogo Investment Holdings (TIH) and of Johnnic.

HCI says it has 51 percent of TIH, but its lawyerly stock exchange notes admit it has 32 percent. Apparently 4 percent of this is under dispute. African Renaissance may not have followed due process in the sale. But willing buyer, willing seller, the deal may well go through.

The remaining 19 percent, which HCI tried to buy from Fabcos Investment Holdings, is under dispute because Johnnic says it had first rights.

Im not so sure Johnnic did have first rights here and I think HCI may get the stake, giving it control of TIH.

When it comes to Johnnic, HCI has 40 percent of the company. Apparently theres a seller in the market with 5 percent. If HCI can get to 45 percent, then it will have effective control.

HCI may be considering upping its bid to snatch that 5 percent. If it has 45 percent in Johnnic, on a look through, it would have almost half of Johnnics 19 percent in TIH, taking HCIs TIH stake to about 60 percent.

Johnnics stake in TIH is a whole other story. Johnnics 19 percent from Fabcos is under dispute, but I think Johnnic will get the shares.

Then Johnnic desperately wants to buy Nafcoc Holdings 25 percent stake in TIH, while giving Nafcoc 30 percent of Johnnic. Johnnic doesnt have enough authorised shares to do this without shareholder approval and HCI is the biggest shareholder.

Maybe Johnnic should give Nafcoc the 15 percent stake it can give without approvals and just buy the rest of the TIH shares with the large cash pile its sitting on, leaving empowerment for a day when it isnt fighting for its life.

It is also rumoured that Standard Bank is trying to work out a financing deal to pull Nafcoc into the fold.

Johnnic does have the financial wherewithal to take Nafcocs stake and African Renaissances 5 percent, taking it to 49 percent of TIH. But with HCIs large and growing holdings in Johnnic, that would give HCI an even bigger stake in TIH.

If the legal battles drag on, then HCI may wait until late this year or early next year to take control of Johnnics board. Once it has done that it will strip the companys assets, sucking up Johnnics R1.5 billion in cash and selling the Sun Coast Casino and Gallagher Estate. HCI will use the cash to support Gold Reef Casinos bid for SABMillers stake in Tsogo Sun.

Gold Reef may well be the first bidder to agree to pay SABMiller the astronomical sum it wants for Tsogo Sun, because it cant lose. With big cash behind it and a listing sure to spin out loads of money, it will be worth signing on the dotted line.

However, its questionable whether SABMiller will take anything but cash on the table, in which case HCI and Gold Reef had better have some impressive loan facilities because they may need R5 billion to secure the deal.

If it goes ahead, Gold Reef and Tsogo will merge and form a new listed entity in which HCI will have a large and controlling stake. However, there may be some competition issues that will slow this down.

To be entirely dispassionate, hostile takeovers are often healthy for an economy. They shake up companies, focus management and make lawyers richer. And the only people who stand to lose their jobs are the 10 very employable staff at Johnnics head office.

It seems that, competition issues aside, Johnnic has a bleak future. It needs to get shares into friendly hands fast but it is probably already too late.

Then again maybe Im as bad a seer as Sibyll Trelawney. Shes forever imagining that Harry will meet a particularly dreadful end and somehow he never does. Maybe Johnnic, with a bit of magic, can pull off a similar feat.